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Hungary Moving Back Into Telecommunications Sector

NYT — Since Europe deregulated its telecommunications industry in 1998, most E.U. governments have gotten out of the business. Britain unloaded BT, for example, the Netherlands ditched KPN and Spain sold Telefónica.

But Hungary is going in the other direction. The country, an E.U. member already under fire for laws restricting media freedom and the independence of its central bank, is seeking to get back into the mobile phone business as a telecommunications operator.

The Hungarian telecommunications regulator is poised to award a mobile phone operator’s license to a consortium of three state-owned companies in an auction that ends Jan. 31.

The move has angered the three existing telecommunications operators — Magyar Telekom, the former monopoly that is 59 percent owned by Deutsche Telekom; Telenor Hungary, a unit of the Norwegian operator; and Vodafone Hungary. These operators fear the creation of a formidable rival that will upset what has been a relatively stable market.

Representatives for the operators declined to comment publicly, citing the Hungarian government’s ban on public communication before the results are announced. But two people close to the operators with knowledge of their plans said the private carriers were wary of the government’s actions.

“We were really surprised that the government would do this,” one person said. “No serious player would enter this market. It is mature and competitive. But the process has not been transparent and there are concerns.”

The operator’s license is being sold by the National Media and Infocommunications Authority as part of an auction of broadcast spectrum, in which the three operators are also buying more bandwidth. The government group, which consists of the national post office, Magyar Posta; the leading electric utility, Magyar Villamosmuvek; and MFB Invest, a state development bank, is the only qualified bidder.

In an e-mail, the regulator also declined to comment until the auction results were announced, possibly as soon as this week. But a person with knowledge of the government plans said the move was intended to shake up a stagnant mobile market, where existing operators have moved too slowly to bring affordable mobile broadband to the masses.

“If you look at the Hungarian market, the market shares of the three operators have not changed significantly in years,” said the person, who declined to be identified because he was not authorized to speak for the government. “The growth in mobile broadband has stagnated, whereas it has grown quickly in surrounding countries.”

A report in May 2011 by Nokia Siemens, a maker of mobile networking equipment, found that in Hungary, “3G coverage and penetration rates are among the lowest of all the innovation-driven economies, and adoption of Internet banking and shopping is still well behind the levels observed in Western Europe.”

The Organization for Economic Cooperation and Development, in a report published last June, found that only a million Hungarians, or about 10 percent of the population, had mobile broadband subscriptions. Hungary lags far behind Slovakia and the Czech Republic, which had mobile broadband penetration rates of 57 percent and 32 percent, respectively.

Hungarian mobile data prices are also among the highest in Europe, the O.E.C.D. said.

“Hungary is one of the most stagnant mobile markets in central Europe,” said Kresimir Alic, an analyst with International Data Corp. in Zagreb, Croatia. “In a lot of these markets, where there are only three operators, there is an effective oligopoly that is too comfortable and too slow to invest.”

Peter Szegedi, a former research manager at Magyar Telekom, said he thought that the Hungarian government wanted to create a fourth operator to put pressure on the other operators to lower prices.

“I think the government probably wants to step into the sector to push the prices a little bit down and make those services available to those who cannot afford them now,” said Mr. Szegedi, who is now an executive at an Internet technology foundation in Amsterdam.

One reason for Hungary’s high prices is that, until recently, it made it difficult for virtual mobile operator resellers, who sell less expensive services after buying access to existing networks, to enter the market. An executive at one Hungarian company that tried to create a virtual operator said that the three existing operators refused to sell wholesale access at reasonable terms.

“There is no real effective legal obligation on these operators to sell access,” said the executive, who did not want to be identified because he feared retaliation against his business.

Hungary’s plans to create a government operator are being closely followed by the European authorities in Brussels. Neelie Kroes, the European commissioner responsible for telecommunications, said she would ascertain whether the Hungarian regulator acted independently in the auction, in which the regulator will award 10.8 megahertz of prime 900 megahertz broadcasting spectrum to the new government-run carrier.

“The commission has been following closely the ongoing auction for 900 MHz frequencies in Hungary,” Mrs. Kroes said in a statement.

At least one operator is studying whether the auction and license award can be challenged in Hungarian or European courts, according to a person with direct knowledge of the situation.

A new state-run operator could be most threatening to Magyar Telecom, which still has the bulk of the Hungarian public sector’s estimated 600,000 mobile phone contracts. Balla Kalman, a spokesman for Magyar Telekom, declined to comment, citing government restrictions on remarks before auction results are announced.

Besides lawsuits, there are other potential obstacles to the new operator.

Although the Hungarian government has given the new operator the right to run its phone service on the networks of the three existing operators for one year while it builds its own network, how much it must pay the operators still needs to be resolved, as do the terms of a comprehensive pact with the rivals to “roam” calls on their networks.

“This is an extremely unorthodox move,” said Mr. Alic of I.D.C. “Most governments have gotten out of the business. Hungary is the only one I know of getting back in.”

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